1. Consider the multi-factor APT with two factors. Portfolio A is well-diversifed and has a beta of 0.75 on factor 1 and a beta of 0.5 on factor 2. The risk premiums on factos 1 and 2 are 2% and 3% respectively. The risk free rate of return is 6%. the expected return on portfolio A is _____ if no arbitrage opportunities exist.
2. Bank A has an ROA of 1.15% and bank B has an ROA of 1.09%, does bank A have a Favorable or Unvaorable ROA compared to bank B? Explain your reasoning.